Technically Speaking with Burak
After a brief stomping of its feet on that $430 support, gold took off again this past week causing speculation that new highs are not too long in coming. Are we getting ahead of ourselves, wishful thinking and all that, or are new highs really a firm possibility soon? Well, as always, let's look at the market action and see if we can come to a reasonable conclusion.
GOLD
As mentioned above, gold seems to have taken off this past week into new rally highs. The short term point and figure (P&F) chart shown this week suggests that the move is headed quickly towards its short term projection of $460. A few weeks ago the P&F chart was suggesting $450 but additional strengthening before the break-out has pushed the projection a little higher. The move this past week has also upgraded one of my Merv's FAN Principle signals. On the short term chart (see last week's chart) the move has broken above the third FAN trend line for a short term bull move confirmation (the original bull signal was given on the second FAN trend line break on Feb 14). This often suggests a move back to the FAN apex point which is just below $460 (seems I've heard that number before). The move is also solidly back inside the second and third intermediate term bearish FAN trend lines (see chart in the Feb 5 commentary). With the recent price well above the level at the breaking of the second FAN trend line (indicating a bear signal) I'm inclined to declare such bear signal nullified. As for the moving averages and price momentum indicators, they are all positive for all time periods. Even the volume indicators are starting to look a little better but the daily volume action is still not impressive. This is about the only negative in the present trend. If the daily volume does not pick up on the continued advance I would be very cautious about this rally's longevity. A look at the very short term Stochastic Oscillator (SO) suggests that the recent action has become overbought, ready for a rest or reversal.
So, what do I think about all this? I would not be surprised for a continued upside rally BUT am worried if the price gets to the $460 level without a perking up of that daily volume. Continue to go with the flow.
U.S. Dollar Index
Down and down it goes, where it stops nobody knows. The US$ Index is heading towards its previous bottom with all moving averages and price momentum indicators negative. Even the aggressive SO is still not in the oversold zone suggesting still more downside very likely. What happens once it should get to its previous lows at just above $0.80 (my next P&F projection is $0.79, then $0.73)? With the strength of the downside moves I would not be surprised if the US$ Index continues lower. However, I am still showing a positive divergence in the very long term price momentum indicator (it has been developing over the past 2 years so don't expect a sudden reversal of trend) and even new lows may not nullify that indicator. Trend rating here is real easy, BEAR for all three time periods (short, intermediate and long term).
Gold Indices and Stocks
Of the major North American Indices I prefer the AMEX Gold BUGS Index (HUI) because it is the more aggressive Index of the bunch, although the relatively new AMEX Gold Miners Index may soon replace it once there is enough historical data for it.
The HUI continues to rally within a tightening wedge pattern. I call it a "wedge" because the price activity is wedged in between the two trend lines, but others may call the pattern a "flag". However, it does not have that flag pole activity leading into the pattern therefore my wedge preference. I may have jumped the gun in previous commentaries calling this a "topping" pattern. It could very easily be a bullish pattern followed by an upside break and another 150 to 200 point move. With a possibility of the price eventually going either way that is why I prefer to let the market activity tell me where it is going rather than me telling the market where it should go.
Although it looks like the rally is progressing nicely, the short term SO is suggesting weakness coming into the trend in recent days. Such weakness has not affected the price trend yet but one has to be on the watch. All my indicators are positive except for the long term price momentum indicator, which is lagging the activity. Here, the long term up trend line dominates. For now I remain bullish on all time periods.
As for my Merv's Indices, well that strong Merv's Gamb-Gold Index was the only Index that turned lower on the week. It is still far and away the strongest Index of them all despite the slight retreat. Another interesting point is that all the Merv's Indices performed worse than the basic North American Indices. Since the Merv's Indices are calculated based upon the average performance of all the stocks in an Index while the North American Indices are calculated by applying a greater weight to the larger companies and lesser weight to the smaller companies in their Indices, this suggests that the larger "quality" stocks outperformed the average stock this past week. An infrequent occurrence during a bull market.
Reading the Info table
The intermediate and long term technical information table provides the latest weighted moving average (MA), price momentum (MOM), relative strength (RS) and an overall technical rating (RATE) of each component. A + or - symbol is provided to indicate if the indicator is gaining strength or losing strength.
Mervyn Burak, CMT
Hudson Aero/Systems Inc.
Technical Information Group
merv.burak@hudsonaero.com
13 March 2005
During the day Merv. practices his engineering profession as a Consulting Aerospace Engineer. Once the sun goes down and night descends upon the earth Merv. dons his other hat as a Chartered Market Technician (CMT) and tries to decipher what's going on in the securities markets. As an underground surveyor in the gold mines of Canada's Northwest Territories in his youth, Merv. has a soft spot for the gold industry and has developed several Gold Indices reflecting different aspects of the industry. As a basically lazy individual Merv's driving focus is to KEEP IT SIMPLE.
Although not normally available to the public, to obtain a copy of the latest weekly technical information on the component stocks of the various Merv's Gold indices, e-mail a request mentioning this Gold-Eagle offer. PLEASE provide at least your full name and home town.
Email this Article to a Friend 
Printer Friendly Version
